Ford to reward purchasing execs on better collaboration

By Amy Wilson, Automotive News

Detroit, Michigan -- Ford's buyers historically have been rewarded primarily for cutting prices. Now Ford global purchasing chief Tony Brown wants to reward them for working more collaboratively with suppliers.

The automaker still is determining how to structure the new reward system, he says.

Tying purchasers' actions to their economic fortunes is essential if Ford is to change its combative purchasing culture, Brown suggested. "How people get compensated is how they behave," Brown said last week during an interview with Automotive News. "How leadership leads is how they follow."

Fewer suppliers

Ford's new purchasing plan, introduced in September, calls for a drastic reduction in the number of key suppliers. Surviving suppliers will be rewarded with higher volumes and long-term commitments that will make them more profitable in the long run, the automaker says.

The proposed transformation of Ford's $90 billion global purchasing unit into a more nimble, Japanese-style organization is one step in a major restructuring effort unfolding at the struggling automaker. Ford's North American auto business has lost $1.4 billion before taxes so far this year. CEO Bill Ford plans to announce significant plant closings and job cuts in January.

Last week Brown named 12 new key suppliers, expanding its list of preferred suppliers to 24. Those vendors represent the plan's first phase, which covers 20 key components such as axles, brakes and seats. Those 20 components make up half of Ford's $70 billion annual production purchases.

Ford ultimately plans to cut key suppliers of those components from 200 to 100 or fewer. The automaker will make the list final by mid-2006.

Last week Brown spoke for the first time about the plan's second phase. Ford will determine the components to be covered by this phase in 2006. In 2007, the automaker will name suppliers who will produce those components.

Ultimately, 60 to 80 percent of Ford's $70 billion global component purchases will be assigned to vendors on its list of preferred suppliers.

New priorities

In the past, purchasers' top priority was to shave a nickel or two off a component's price. Incentives which encourage purchasers to consider other factors - such as quality, technology or reliable deliveries - may be the key tactic for overhauling Ford's purchasing system.

Ford won't create a collaborative purchasing culture like those at Japanese automakers unless buyers gain suppliers' trust, says John Henke, president of Planning Perspectives Inc., a Birmingham, Mich., consulting firm that surveys suppliers about their relationships with automakers.

"Tony Brown has no alternative but to put in place a very reliable means to gauge how the supplier-buyer relationship is taking place," Henke says. "If it isn't taking place the way he wants it to take place, the buyers literally have to be punished."

Top Ford executives have said they want to work more collaboratively with suppliers. But suppliers say that was just talk: Ford's purchasers continued to hammer them for price cuts.

Some are skeptical

While suppliers are encouraged about Ford's about-face, some remain skeptical.

An executive at one Ford electronics supplier says his company will politely decline any offer to join Ford's preferred supplier list because of what he expects will be even tougher pricing demands.

He says that the details of Brown's programs are kept sketchy until a supplier agrees to become part of the program. He has been told by a Ford insider that the automaker will offer contracts to preferred suppliers on a take-it-or-leave-it basis.

Other suppliers also say details are scarce. One supplier suggested that preferred companies will have to promise price concessions.

Brown emphatically denied that notion. This plan is not about beating suppliers up over price, he said. It's about fixing a system that's broken.

"You and I and everyone in the industry knows, unless you're under a rock someplace, that we need to change the way business is done," Brown said.

At a meeting Thursday, Dec. 1, with Ford's 100 largest suppliers, Brown said Ford intends to:

• Create "matching pairs." An engineer and a buyer will be assigned to a specific component. They must work together on cost, quality and other criteria.
• Bring products to market 12 to 14 months faster by adopting Mazda's development processes. It takes Mazda about 38 months to develop a vehicle, compared with 51 months for Ford, said Paul Stokes, executive director of Ford's European purchasing operations.
• Improve engineering efficiency drastically. Mazda's efficiency is about a third better than Ford's.
• Bring key suppliers into the vehicle program much earlier. Suppliers now typically get involved 32 months to 46 months before Job 1, Ford spokesman Paul Wood says. Under the new system, some key suppliers will get involved in the preplanning and research stage, as much as 60 to 70 months before Job 1, Wood says.
• Reduce late engineering changes. Bringing suppliers in earlier and working together more collaboratively should trim this major source of cost overruns and quality glitches.

Robert Sherefkin contributed to this report

From Automotive News (A Crain publication)